Admiralty Jurisdiction Vis A Vis Company Court- Which Will Prevail?

The Madras High Court recently while hearing a batch of applications filed by various maritime claimants has passed a landmark judgement on a significant question of law. The query which arose for consideration was whether the leave of the Company Court under Section 446(2) of the Company’s Act, 1956 was mandatory prior to hearing the various applications of the claimants while exercising its special Admiralty Jurisdiction conferred by virtue of it being a Chartered Court.

To briefly state the facts, the vessel M.T.Pratibha Cauvery was caught in the eye of a cyclonic storm named ‘Nilam’ around 27^th of October 2012, wherein several crew members were stuck in the ship with no means to water or food. As the intensity of the storm grew stronger, some of the crew members decided to jump into the sea by using the life boats available to them on the vessel for their survival. However, as the said life boats were not having sufficient fuel, the crew members were stranded in the sea for a substantial period and subsequently succumbed to the storm and sea pressure. They were later found on the sea-shore in and around Chennai.

Consequent to the above sequence of events, a Writ Petition No.31942 was filed in 2012, seeking an enquiry into the incident in respect of the vessel and to take appropriate action against its owner. The Court after hearing all the parties, directed the owner of the ship viz., Pratibha Shipping Company Ltd., Mumbai, to pay the admitted sum of Rs.87,45,300/-as an interim measure to the legal heirs of the deceased crew members. A direction was also issued to the Registrar General of the Court to disburse the amount to the legal heirs of the deceased on such deposit. There was also a direction to the said owner of the ship to deposit a further sum of Rs.5 Crores as security to the satisfaction of the Registrar General before moving the vessel from the territorial jurisdiction of the Court. The company was also directed to calculate the admitted arrears of the salary payable to the petitioners in the Writ Petitions filed by the parties and pay the same within a period of four weeks.

Subsequent to the above directions, a Civil Suit No. 89 of 2013 was filed by the affected parties under the Admiralty jurisdiction of the Madras High Court as per Order XLII of the Madras High Court Original Side Rules, with a view to determine their respective claims. By order dated 18.04.2013, the Court directed the sale of the vessel, which was berthed within the jurisdiction of the Court, for a total consideration of Rs.15,64,80,000/- to be deposited with the Registrar General. In due course, by virtue of sale of the vessel, several claim petitions were filed by various claimants who became secured creditors after the arrest of the vessel.

However, during the hearing of the above claims, it was brought to the attention of the Court that winding up proceedings were initiated against the owner of the vessel M/s.Pratibha Shipping Company Ltd., in the Bombay High Court in Company Petition No.128 of 2013 and a provisional liquidator also came to be appointed on 28.07.2014. It is in the above milieu that an essential question was propounded by the Court on whether leave of the Company Court was imperative before an Admiralty Court could exercise its jurisdiction to decide the claims.

Reasoning of the Court

The primary arguments and contentions advanced by the various claimants were that the proceedings under the Admiralty Jurisdiction being an action ‘in rem’ against the vessel and by virtue of the vessel being arrested and sold by the Court in exercise of the powers under Order XLII of the Madras High Court Original Side Rules, they would have a maritime lien over the monies and attain the position of secured creditors. Additionally, an action ‘in rem’ under the Admiralty Jurisdiction makes the ship / vessel a juristic person liable for certain actions de hors its owners.

It was also pointed out that, an arrest of the vessel can be made even for liabilities of persons who are not the owners of the ship and, therefore, the claims of the applicants, insofar as they relate to the ship in question cannot be stayed under Section 446 of the Companies Act.

To substantiate the above proposition, reliance was placed on the decision of the Supreme Court in the case of M.V.Elisabeth and others Vs. Harwan Investment & Trading Pvt. Ltd., AIR 1993 SC 1014, in specific paragraphs 56 & 57, wherein the Court held as follows;

“56. An action in rem is directed against the ship itself to satisfy the claim of the plaintiff out of the res. The ship is for this purpose treated as a person. Such an action may constitute an inducement to the owner to submit to the jurisdiction of the court, thereby making himself liable to be proceeded against by the plaintiff in personam. It is, however, imperative in an action in rem that the ship should be within jurisdiction at the time the proceedings are started. A decree of the Court in such an action binds not merely the parties to the Writ but everybody in the World who might dispute the plaintiff's claim.

57. It is by means of an action in rem that the arrest of a particular ship is secured by the plaintiff. He does not sue the owner directly and by name; but the owner or anyone interested in the proceedings may appear and defend. The Writ is issued to owners and parties interested in the property proceeded against. The proceedings can be started in England or in the United States in respect of a maritime lien, and in England in respect of a statutory right in rem. A maritime lien is a privileged claim against the ship or a right to a part of the property in the ship and it travels with the ship. Because the ship has to pay for the wrong it has done it can be compelled to do so by a forced sale......If, however, the owner submits to jurisdiction and obtains the release of the ship by depositing security, he becomes personally liable to be proceeded against in personam in execution of the judgment if the amount decreed exceeds the amount of the bail. The arrest of the foreign ship by means of an action in rem is thus a means of assuming jurisdiction by the competent court.”

Therefore, the contention before the Court was that an action against the ship is essentially ‘in rem’ and the ship as such becomes a juristic person answerable to all the claims against it. By virtue of the said scheme, a Maritime lien being a privileged claim against the ship can be enforced de hors the petition for winding up.

An interesting factor to be noted at this juncture is that what was sought by the claimants was that by virtue of the arrest and sale of the ship and the money being deposited in the Court, the Court assumes the role of a ‘custodia legis,’ which thereby confers upon it jurisdiction to adjudge the claims.

In this context, reference may be made to a decision of the Chancery Division reported in the case of In re Lineas Navieras Bolivianas SAM reported in [1995] B.C.C 666, wherein, the Court after discussing the procedure relating to Admiralty, concluded that once a person having maritime lien obtained an order for sale of the ship and the proceeds were held by the Admiralty Court, it will have to be complied in accordance with its procedures.

The claimants or the person who obtained an order of arrest becomes a secured creditor and thus there could be no possible objections to its enforcing its security by obtaining an order of sale. It was also made clear in the above case that the applicant did not in fact require the leave as per Section 130(2) of the English Company Act, since there were no proceedings initiated against the Company or its property. Hence, what can be inferred from the above decision is that the conversion by virtue of the arrest and sale of the ship must be deemed in law to have taken effect from the execution of the warrant of arrest executed by the Marshal on behalf of the Admiralty Court.

The conclusion arrived at by the Hon’ble Court, however, was based on the submissions made by one of the counsels for the claimant in paragraphs 18-21 of the judgment which are as under:

            “18. Mr. N.V. Srinivasan, learned counsel appearing for one of the applicants would rely upon the judgment of the Hon'ble Supreme Court in Allahabad Bank Vs.Canara Bank and another reported in 2000 (4) SCC 406, where the conflicting provisions of the Companies Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 were considered. Taking note of the maxim Generalia Specialibus non derogant, the Hon’ble Supreme Court had held that Recovery of Debts Due to Banks and Financial Institutions Act being a special statute would override the provisions of the Companies Act and hence the Bank or Financial Institutions do require the leave of the Company Court to proceed with the modes of recovery to prosecute the proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act.

19. The Hon’ble Supreme Court had framed the following question for determination:


20. Whether after a winding up order is passed under Section 446(1) of the Companies Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDDB Act, transfer them to itself and also decide questions of liability, execution and priority under Section 446(2) and (3) read with Section 529, 529-A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal?


21. While answering the question Nos. 2 and 3 the Hon’ble Supreme Court had observed as follows:

“At the same time, some High Courts have rightly held that the Companies Act is a general Act and does not prevail over the RDDB Act.”

21. Relying upon the above decisions Mr. N.V. Srinivasan, learned counsel would contend that the proceedings under the Admiralty jurisdiction of this Court are essentially under the Merchant Shipping Act and clause 32 of the Letters Patent, which are special enactments relating to proceedings against vessels under Admiralty jurisdiction of the Court. Being special enactments they will override the general law viz., Companies Act, 1956.”

Based on the above submissions, the Hon’ble Madras High Court concluded under paragraph 36 of its decision as follows:

“36. In view of the above pronouncements, I am of the considered opinion that the action in rem initiated under the Admiralty jurisdiction stands on a totally different footing and the same cannot be made subject to the proceedings under the Companies Act against the owner of the ship. Thus action in rem being only against the ship itself, it cannot be construed as an action against the owner of the ship, in order to invoke Section 446(2), for staying the said action. Even otherwise, the proceedings under the Admiralty jurisdiction being the proceedings under the Merchant Shipping Act 1958 which is a special enactment will not be affected by the proceedings under the Companies Act which is a general law. As pointed out in Allahabad Bank Vs.Canara Bank and another reported in 2000 (4) SCC 406, as well as in Damji Valji Shah and another Vs. Life Insurance Corporation of India & others reported in 1965 3 SCR 665, the proceedings under the special enactments cannot be affected by initiation of winding up proceedings.”

Therefore, to summarize the significant principles of law that have been propounded in this decision:

1. An action ‘in rem’ being an action against the ship, which is a person by itself, is not an action against the owner of the ship and thereby, the leave of the Company Court under Section 446 is not essential to initiate proceedings under Admiralty.


2. The Merchant Shipping Act being a special enactment, the provisions will override the general enactment viz., Companies Act and, therefore, the proceedings under Admiralty jurisdiction being one under Merchant Shipping Act and the Letters Patent of the Court can be proceeded with de hors the winding up proceedings.

Conclusion

For deciding any maritime claim in India, it is imperative that the Courts adopt the provisions of the Merchant Shipping Act, 1958. The Companies Act, therefore, being a general and prior legislation, will have to make way to the special enactment. This principle of Generalia Specialibus non derogant has in fact been repeatedly applied by Courts as is evident from the decisions in O.Konavalov Vs. Commander, Coast Guard Region, reported in (2006) 4 SCC 620 & Damji Valji Shah and another Vs. Life Insurance Corporation of India & others reported in 1965 3 SCR 665 to name a few. In fact, with the introduction of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, it is hoped that the parliament takes note of this decision and considers specifically addressing this issue.

Further, the reasoning of treating a ship or vessel as an individual person is also a significant stride in determining the issue of jurisdiction. Internationally, Courts have recognised this principle as can be evinced from the decisions in Kuo Fen Ching and Another v Dauphin Offshore Engineering & Trading Pte Ltd, [1999] 3 SLR 721 and The Oriental Baltic, (2011) SGHC 75 among others. However, certain Courts have attempted to distinguish the law based on whether the Admiralty Suit was filed prior to the commencement of winding up proceedings or post, which requires something to ponder on. (Refer The Zafiro [1959] 3 WLR 123; In re Aro Co Ltd [1980] Ch 196; Ayerst v C & K (Construction) Ltd [1976] AC 167; In re Oriental Inland Steam Co (1874) 9 Ch App 557)

Hence, this decision of the Madras High Court will go a long way in safeguarding the genuine interest of maritime claimants from not being scuttled by technicalities and thereby ensure swifter justice.

Varun Srinivasan is a Counsel who appeared before the Madras High Court in this case. He is a Senior Associate with the law firm NVS & Associates and the Co-Revising Editor of Tannan’s Book on Banking Law & Practice, 25^th Edition published by Lexis Nexis. He is also a Member of the Chartered Institute of Arbitrators, London (MCIArb).

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